Who can you trust to handle your affairs after you’re gone? It’s an important question that doesn’t often get the consideration it’s due. Choosing an executor takes more than just picking someone you know and trust—you need to ensure the person you choose is capable and has the time to do everything the job requires.
What Is an Executor?
An executor is a person, financial institution, or trust company that you, as the testator (or creator) of your will, appoint to carry out the terms of your last will and testament. You might choose to have co-executors, such as your surviving spouse, child, advisor, or another person, serve together with a trust company or bank.
The position comes with a great deal of responsibility and requires a broad range of skills. Handling an estate, even a small one, can be time-consuming. This person or company will work with accountants, attorneys, bankers, and investment professionals, to settle your estate.
Good Characteristics to Look For
Since your executor will be handling so many different services for you, you want to ensure that person can perform in the role. You want to look for:
- Honesty and integrity. The individual or institution you select must be trustworthy. You don’t want to shortchange your beneficiaries by making the wrong choice.
- Financial intelligence. Your executor should understand financial matters, as they will need to make an investment analysis of all your assets and determine which to retain or sell to meet your estate’s cash needs.
- Tax experience. Your executor is responsible for filing your federal, state, local, and gift tax returns for the year you pass and for prior years if they are not current. Tax planning experience is helpful because your estate will need a comprehensive tax plan to minimize taxes paid by the estate and your beneficiaries.
- Impartiality. If your executor is also a beneficiary, there could be friction or even a conflict of interest, as certain decisions, like tax elections, can have a direct financial impact on all beneficiaries. Whoever you choose must make these decisions impartially, not favoring one beneficiary over the other.
- Availability. Settling an estate can take up to two years or more, depending upon the size and complexity of your estate. IRS audits can add six to 12 months to the process.
What Does an Executor Do?
An executor settles your estate. There are five essential functions involved. Your executor must:
- Locate and collect your assets and hold them until they are distributed to your beneficiaries.
- Determine the amount and raise the cash needed for your estate’s final bills.
- Pay your debts, estate administration expenses, and funeral expenses.
- Handle your final taxes, including preparing your final income and gift tax returns, paying your estate’s income and estate taxes, and coordinating your tax planning for your estate and your beneficiaries.
- Distribute your remaining assets as set out in your will.
How Much Does an Executor Get Paid?
If an executor is a beneficiary, the job is not typically compensated. However, more complex estates that take years to resolve may include payments to the executor. As the testator, you can set a specific dollar amount for your executor to be paid or specify the payment of reasonable fees based upon state law.
Should You Pay a Professional?
The complexity of your estate, not necessarily the size, would most likely determine whether you need a professional executor. A $2 million estate that consists of a house and a bank account is easier to manage than the same dollar estate with a small business and multiple investment properties attached.
Every estate is different, as is every beneficiary group. Consider all aspects of the executor’s job, and determine who or what entity can most efficiently and equitably discharge your estate.
The ultimate role of an executor is to carry out your final wishes after you’ve passed away, so it’s a good idea to plan carefully and choose the executor of your estate wisely.
Seniority is published by Finance of America Reverse LLC. The views expressed in this publication are those of the author alone and do not necessarily reflect the views and opinions of Finance of America Companies. This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
